India's Digital Competition Bill is pitting consumer protection against market reforms; here's how

Over the past few years, India has joined a number of jurisdictions globally to work on regulating competition in digital markets. Some of them are also weighing in on a separate legislation for the digital economy with ex ante or pre-emptive regulations for large tech firms. For instance, the EU’s Digital Markets Act (DMA), that has fully come into effect. The DMA has identified six gatekeepers—Alphabet, Meta, Microsoft, Amazon, Apple and ByteDance—which will have to comply with regulations to ensure that there is competition in the markets. The UK Parliament, too, is in the midst of approving the Digital Markets, Competition and Consumers Bill that would empower its Competition and Markets Authority to regulate competition in digital markets. Back home, the country’s antitrust regulator, the Competition Commission of India (CCI), has been probing anti-competitive practices by many of these Big Tech firms, and has already penalised some of them.

“With close to 15 jurisdictions thinking in terms of bringing rules on dos and don’ts or ex ante regulations for large digital companies, there clearly is a problem in how these players behave and hence pro-competitive behavioural rules may be required,” says Payal Malik, Visiting Professor, Digital Economy Startups and Innovation, and the ICRIER Prosus Centre for Internet and Digital Economy (IPCIDE) at policy think tank ICRIER.

Consumer interests, especially related to personal choice and data, have been a key issue for regulators globally as they try to tackle challenges around regulating competition in digital markets. Another factor is complaints by smaller domestic start-ups that they are not being given a fair chance by these Big Tech firms. The Alliance of Digital India Foundation (ADIF), which was set up in 2020 as a think tank for India’s digital start-ups, has been at the forefront in many of these cases.

Global investors are closely watching how these developments pan out in one of the largest developing markets in the world. India had the world’s second-largest internet user base with over 821 million users in 2023, per data analytics website Statista, and the numbers are still growing. A recent report by Invest India, the national investment promotion and facilitation agency, has forecast that by 2030, the country will have the second-largest online shopper base, with nearly 500 million customers.

Under the lens

Big Tech has often faced regulatory scrutiny in India. For instance, Alphabet Inc.’s Google has been under CCI’s scanner time and again. Recently, CCI ordered a probe into its Play Store billing policies, under which it charges commissions for providing digital services to apps for in-app purchases.

But it’s not just Google. CCI has often probed Big Tech firms for anti-competitive practices and abuse of their dominant position. In 2022, India’s competition watchdog imposed monetary and non-monetary penalties on MakeMyTrip, Goibibo and OYO for indulging in anti-competitive conduct. The office of CCI’s Director General, which looks into cases of anti-competitive behaviour, is understood to have completed probes against several other Big Tech firms including Apple, Meta, Swiggy, Zomato, Flipkart, Amazon and BookMyShow, say sources.

The other aspect has been legislation. With the Competition (Amendment) Act, 2023, a start has been made to give legislation more teeth to regulate the digital markets. While many of the new provisions will have an impact across sectors, experts believe that certain provisions would have an effect on the operations of Big Tech firms. These include provisions about the calculation of penalties based on global turnover, a new deal value threshold for M&As above which companies would require approval from CCI, as well as a system of settlement and commitment that can be availed by any entity against which an inquiry has been ordered.

“There are some things that definitely do impact tech, but the applicability primarily is not focussed towards tech,” says Anshuman Sakle, Partner at law firm Khaitan & Co. According to him, the major change in the Act itself, which will likely impact tech the most, is that when there is a calculation of penalties, it will be looked at from the perspective of global turnover. “A lot of these companies have far greater turnovers globally than what they would have in India. That... will hit them hard,” he says.

Agrees Prateek Jain, Associate Director at ADIF, adding that penalties and provisions targeting deal value thresholds will significantly impact digital players. “These amendments address a critical loophole wherein significant digital mergers and acquisitions, often termed as ‘killer acquisitions’ previously escaped scrutiny due to their low monetary value at the time of transaction,” he says, adding that the deal value threshold of Rs 2,000 crore would mean that transactions involving substantial digital players operating in India will be mandatorily scrutinised by CCI.

While industry has taken these changes in its stride, a major concern is the draft Digital Competition Bill (DCB), put out for public comments by the Ministry of Corporate Affairs (MCA) along with the report of a high-level committee on digital competition law in March 2024. The deadline for submitting comments ended on May 15.

The genesis of this committee and the subsequent bill is from a December 2022 report on anti-competitive practices by Big Tech firms by the Parliamentary Standing Committee on Finance. The report identified 10 anti-competitive practices, including anti-steering provisions that often prevent app publishers from moving out of the app store for alternative payment mechanisms; deep discounting; exclusive tie-ups; advertising policies; and restricting third-party apps. It had also called for ex ante regulations for identified digital gatekeepers or systematically important digital intermediaries as well as a separate digital competition bill.

“The Committee observes that the current ex post framework under the Competition Act, 2002, needs to be supplemented to better address concerns related to alleged anti-competitive practices of large digital enterprises,” says the March 2024 report. To this effect, the draft DCB has recommended ex ante measures be introduced to complement the current ex post framework by identifying large digital enterprises with a ‘significant presence’ in India in selected ‘core digital services’ (CDS) and setting pre-determined rules for their conduct. (See box ‘Decoding the Draft Digital Competition Bill’).

The big debate

The recommendations, which have garnered equal amounts of praise and criticism, came after extensive discussions with stakeholders. Questions have arisen over the need for a separate digital competition bill as well as pre-emptive measures, which a section of the industry as well as many experts believe will work as a “blanket ban” and impact investments and innovations in the fast-evolving sector.

In fact, industry body Internet and Mobile Association of India (IAMAI), in its comments on the draft bill, has said it may dry up venture investments in tech start-ups. In their discussions, most Big Tech firms including Amazon, Apple, Google, and Meta, and domestic giants like Flipkart and OYO said that they were not in favour of ex ante regulations.

Most Big Tech firms that BT reached out to for their views on the draft DCB did not respond to a request for comments.

“There’s an active debate in some countries about whether to adopt new rules that single out a handful of leading technology services. While these prescriptive laws seek to promote competitive digital markets, they can involve trade-offs that raise prices and limit choice for consumers and businesses,” Adam Cohen, Director of Economic Policy at Google, wrote in a recent blogpost.

Since the introduction of the changes in the EU’s DMA, Google has seen increased traffic to a small number of successful intermediary services and significantly less engagement with a wide range of businesses like airlines, hotels, local merchants and restaurants, he wrote.

“The full impact of EU’s DMA is yet to be seen. It is already creating challenges for companies to comply with in terms of data privacy and business growth,” says an industry source, adding that seeking consent from users for every new purchase or application can lead to “consent fatigue”. Monetisation or revenue is also a problem as tech firms point out that user data is one of the simplest ways to make a profit.

Many believe that these problems will further exacerbate in a developing market like India, which is keen on attracting investments, is a start-up hub, and aims to become a $1-trillion digital economy by 2030.

Sakle of Khaitan notes that the need for an ex ante regulation is being felt by competition regulators globally because they believe the market is moving so fast that by the time any probe is completed, the purpose and point of it becomes a little bit of a lost cause. “All these new digital markets primarily are ‘winner-takes-all’ kind of markets. It ends up getting one large player in that particular space, which kind of rules the roost.”

Others like Malik of ICRIER believe that an ex ante framework will ensure that the competition regulator can work faster to regulate firms in the sector. She notes that at present, competition law tends to be very case-specific, and remedies are not all pervasive for addressing similar conduct in a different context either in an ecosystem or across ecosystems. According to her, while there is a need to debate the nature and form of a digital competition law, the fundamental position remains that this is the right time to frame some guidelines to check anti-competitive behaviour. “By and large, there can be ex ante regulations for Big Tech firms, but [their] design should be such that the remedial obligations identified should be self-executing, individualised and compliance-driven,” she says.

However, former CCI chairman Vinod Dhall says that a key principle of competition law is consumer welfare and the bar for intervention by the competition authority is very high. “The competition law is ex post, not ex ante, and is obliged to examine matters case by case,” he says, adding that the objectives of competition law and the proposed DCB are the same: to maintain competition in the digital markets.

“The question is whether the same objective can be achieved by strengthening the competition law,” he says, adding that the Competition Act itself can be strengthened.

Industry players also question the need for a separate digital competition Act as many of the clauses around data usage and privacy are already there in the Digital Personal Data Protection Act, 2023. There are also concerns about how the CCI, with already stretched resources and staff, will enforce the proposed provisions of the DCB.

Besides these, industry has also red flagged several provisions in the DCB. These include the proposed thresholds, which are seen to be low and could include a vast number of firms, including non-tech ones with a digital presence.

The draft bill has prescribed financial and user thresholds for the past three financial years that would be used to identify enterprises engaged in CDS that would be considered as systemically significant digital enterprises (SSDE).

The way ahead

Saksham Malik, Senior Programme Manager at public policy think tank The Dialogue, says there might be a need to customise the scope of CDS and the quantitative thresholds for designation of SSDEs in the law. “While the list of CDS includes various services that have not observed any structural competition bottlenecks, the numbers provided under quantitative thresholds are too low. Both aspects can likely lead to the law covering a significantly large part of the technology industry without sufficient need,” he says.

A report by IndusLaw also highlights that the DCB empowers the CCI to demarcate any enterprise as an SSDE even if it doesn’t meet any of the thresholds, if the watchdog believes that such an enterprise has a significant presence in respect of a CDS, based on an assessment of the information available with it considering any or all of the qualitative factors set out in the DCB.

A section of micro, small and medium enterprises are of the view that the proposed law could adversely impact them due to the limitations placed on targeted advertising by large digital platforms.

For now, there doesn’t seem to be a clear answer or consensus on any of these issues. But what almost all stakeholders agree upon is that there needs to be more discussions before the bill is finalised.

Malik of The Dialogue says the DCB will require significantly more time for consultation. “An extended timeline... will allow the ecosystem to conduct more analysis on the impact of the law on the economy, and also bring in stakeholders like gig workers, small sellers and consumers in the discourse,” he says.

Sakle of Khaitan notes that all tech companies would want the level of prescriptiveness in any law to be as less as possible. “What end shape and form the draft DCB takes will be based on discussions and debates in the next few months,” he says.

The MCA has indicated that it is keen on taking forward the bill on priority and it is likely to be a key focus area once the new government is formed. More discussions will, of course, follow and industry and experts are hopeful that a happy consensus—like that for the DPDP Act—may be forged. But that’s still some distance away. 

@surabhi_prasad